Edelweiss says ‘Buy’ Muthoot Finance shares; target price Rs 442

As against fears of gold loan companies bearing major brunt of demonetisation, Muthoot’s business practices helped it recover swiftly with: AUM growth of 8% y-o-y versus initial expectation of decline; and GNPLs rise restricted to 2.9% (2.2% in Q2FY17; a technical increase which management expects to recoup in Q4FY17).

As against fears of gold loan companies bearing major brunt of demonetisation, Muthoot’s business practices helped it recover swiftly with: AUM growth of 8% y-o-y versus initial expectation of decline; and GNPLs rise restricted to 2.9% (2.2% in Q2FY17; a technical increase which management expects to recoup in Q4FY17).

Focus on cost efficiency persisted (opex/asset at sub-4.5% levels), thus supporting profitability. NIMs were softer on lower yields (lower collections, higher interest income reversal), though funding cost will benefit from retirement of long-term borrowings over next few quarters, which will help sustain/improve NIMs.